Threshold Modeling for Inflation and GDP Growth

The study has evaluated the relationship between the inflation rate and GDP growth of Pakistan using the annual data of inflation rate and GDP growth since 1972 to 2016 for Pakistan. The paper has used the different techniques like; OLS, FMOLS, TAR and dummy method threshold model, to estimate the true relationship between the concerned variables based on the previous studies those gives mixed results. The study has concluded the positive relationship between the inflation rate and economic growth of Pakistan at 5.5% to 9% threshold level of inflation and confirmed the nonlinear relationship between them. And low and double figure inflation rate are considered to have adverse effect on the economic growth of the Pakistan. So to stimulate the stable economic growth of Pakistan we need to have medium rate of inflation.